Guide to Buying Off-Plan in the UK:
Buying an Off-Plan property in the UK as mentioned in our introduction is a process that can seem daunting. Samuel Dawson Property was set up 5 years ago with a mission to help our investors prosper and grow through off-plan property across the globe. We match our investor’s requirements with the best properties with a focus on our core values of integrity, transparency, and utmost reliability.
Here are six checkpoints to help you decide which property to add to your property portfolio.
Location:
The UK in the main as four powerhouse cities that entice investors from all corners of the globe for a variety of reasons. It also has a sub-section which I will come to shortly. The four cities I like to concentrate on for property investment in no particular order are:
London is regarded as the flagship real-estate market, it is a mature property haven for the high net worth investor and leads the way in many aspects.
Birmingham is the second city, areas of regeneration and funding across multiple ventures, this city has seen investor growth significantly rise over the last 10 years.
Manchester is the northern powerhouse, with exponential growth over the last 15 years and home to one of the most vibrant sports, culture, business, and music scenes in the UK.
Liverpool has the lowest price point of the four but is on a large upward trajectory. Since having Europe’s Capital of Culture in 2008, Liverpool has seen residential and commercial upsides across the city center.
The commuter belt is the area surrounding London, due to high house prices in central London investors look for innovative ways of catching the tenants who work within the city. This has led to cluster developments in smaller suburbs which provide a high standard of living at a more reasonable cost.
Ascertaining an investor’s requirement, we can quickly establish which city will be best based on budget and the financial returns they are wanting to achieve. We will often provide cross-city options to help investors see what each city can offer for their individual portfolio.
Developer:
Once you have chosen the city you will be looking at, you will then be looking at the project with the main affirmation and accreditation of the project being the reputation and track record of the developer in question.
Developers should be able to show previous levels of work and the financial achievements of previous units to gauge the future performance of projects under-construction.
We have established relationships with the most credible and industry-leading developers in the UK so you can choose to work with the one that suits your requirements. All have a reputation and history of providing a high-level product and we invite you to see which developers we are working closely with currently.
Price:
When you are looking at price, many investors will look at the price of an apartment and just compare that with the price of another property and decide which one is more, or less expensive based on that simple comparison.
It is important to find out the cost per sq ft or meter. That simply is the size of the unit divided by the price. This means you are able to then compare the price of the unit which any property in the world based on that simple metric.
Many things dictate the price of a project, not least the profit margins forecast by the developer, so it is important that due diligence is conducted to make sure the units are worth the asking price. Purchasing at the right-price also enables you to gain the maximum amount of Capital Appreciation.
Other factors include the location, amenities within the development, developer, and specification of the properties.
Payment Terms:
Also referred to as a payment plan, payment terms are a critical factor in any Off-Plan investment. All off-plan developments require a reservation fee, the most common reservation fee is £5000. We then look for payment plans that are roughly around 20/80, which means 20% is paid up to handover and 80% is paid on handover. This indicates a couple of important factors. The developer is cash-rich and does not require a large proportion of the property to be paid to assist in build costs. It also allows the maximum amount of Capital to be kept by yourself, the investor.
The final payment of 80% which is due around handover, on residential properties, can be mortgaged or a certain amount of this will be able to. It is critical to speak to a mortgage advisor, again, a developer with a proven track record will usually obtain a LTV (Loan To Value) higher than a developer just starting out. Banks, as well as investors, like to see a track record and if the bank is willing to provide a higher LTV this should appease you as an investor, as banks’ due-diligence is some of the most stringent of any sector.
The Unit & Exit Strategy
One of our main points of advice is always to take the most premium unit available within the development. From units within our portfolio and past experiences with our international investors, the most premium units appreciate the most in good markets and deprecated the least in negative markets. They are favorable for tenants when viewing and when you come to sell the unit down the line, they always perform better from a re-sale perspective (sell quicker and achieve a higher price).
It is very easy to save a couple of thousand and drop a few floors, or not take the advice on the most premium view, but these small details do matter. This leads to one of the next big points about an Exit Strategy, you need to have a contingency plan for a worst-case scenario (lost job, bereavement etc..) make sure you know the legalities of who the unit would fall to. We always advise to have the Capital get to the handover of the unit, so if the payment plan is 20/80, we would only advise you to proceed if you have the full 20% capital to get you to handover. This would provide ample time to re-sell and you would benefit from the appreciation during the construction period.
Over the past 7 years, I have seen all scenarios and possible mistakes made, again just small bits of advice at the purchasing stage can have a long-standing impact further down the line.
Booking Process:
Buying Off-Plan, compared to a normal house purchase, is generally a much simpler and stress-free process. Once you have gone through these seven days of recommendations and we are able to find the right property to add to your portfolio. The process follows the below format:
- Reservation Fee (usually £5000) along with booking form, passport copies.
- Solicitor appointed, exchange of contracts usually takes 30 days
- Exchange of contracts and second payment made, this is usually around 20/30% of the property value
- Any additional payments before handover
- Final Payment to developer and handover (for those seeking to finance the project will get approved lenders a couple of months before handover and LTV will be established. It is important to work with the right agent and knowledge partner to keep you updated on steps such as these.)
This is a very brief guide to buying off-plan property in the UK, it is for the main, a very straight-forward process. If you have the time to do the research, visit projects, meet developers and cross-examine projects it is a process you can do yourself. But I would always advise if this can not be achieved to the highest level then sign up with the right knowledge partner to assist those who have already completed the previous steps and much more.
Sam Dawson
Managing Director
Samuel Dawson Property
Off Plan Dubai Ltd
Very useful overview, thanks